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Japan-Update

Apple supplier Japan Display's red ink spreads as LCD sales fall

Pivot to OLED for new iPhones threatens Tokyo-based supplier

Device parts maker Japan Display is being hit hard by a decline in LCD panel sales.

TOKYO -- Japan Display Inc. is heading for a deeper earnings slump as sales of its mainstay liquid crystal panels tumble amid a shift by major customer Apple to a newer screen technology for upcoming models.

The Tokyo-based company is likely to log its first group operating loss in the year ending March 2018 since its listing in 2014. 

As for the bottom line, Japan Display is seen posting a fourth straight annual net loss -- possibly its worst to date -- owing to 170 billion yen in charges stemming from cost-cutting measures.

With sales poised to drop 15-25% from last fiscal year's 884.4 billion yen ($8.1 billion), "logging an operating profit will be difficult," said Chief Financial Officer Takanobu Oshima. JDI has not released earnings forecasts for this fiscal year.

JDI is working to reduce fixed costs.  It announced job cuts and other measures in August, but the drop in sales to Apple will take a toll.

Cash control

To counteract the slide in revenue, Japan Display will establish in-house companies in October that manage their own cash flows. Each company will seek to reduce inventories to improve their cash conversion cycle and other measures of cash flow.

JDI has suffered from continuous negative free cash flow since 2012. "We want to achieve positive cash flow soon, but doing so this fiscal year will be challenging," said the CFO.

While working capital was tight last fiscal year, "this fiscal year, we do not expect any major issues," said Oshima. The company secured a new credit line worth 107 billion yen from three Japanese banks last month.

Oshima said little about Japan Display's reported search for a sponsor to help turn itself around. The company is said to be seeking to raise 200 billion yen to 300 billion yen. Oshima said specific plans for generating growth capital have yet to be discussed.

The company's share price has been on a steady slide this year, even after August, when JDI announced job cuts. "There's not much we can do" about the share price, Oshima said. "We will strengthen our operational fitness so that even if sales waver, we will be able to secure steady cash flow," he said.

Japan Display will spend 25 billion yen on research and development this fiscal year, up 70% from a year earlier, in hopes of catching up to South Korea's Samsung Electronics in organic light-emitting diode displays. But with JDI's start of mass production of OLED smartphone panels not expected until around 2019, Samsung's lead looks likely to widen further in the meantime.

(Nikkei)

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